First and Last Word on Metals and Mining

There are clear signs of a liquidity crunch in the asset markets right now, and the question I keep hearing is, Is this 2008 all over again?

No, it’s worse. Much worse.

In 2008 there was a lot more faith and optimism upon which to draw. But both have been squandered to significant degrees by feckless regulators and authorities who failed to properly address any of the root causes of the first crisis even as they slathered layer after layer of thin-air money over many of the symptoms.

Anyone who has paid attention knows that those “magic potions” proved to be anything but. Not only are the root causes still with us (too much debt, vast regional financial imbalances, and high energy prices), but they have actually grown worse the entire time.

As always, we have no idea exactly what is going to happen and when, but we can track the various stresses and strains, noting that more and wider fingers of instability increase the risk of a major event. Heading into 2012, there’s enough data to warrant maintaining an extremely cautious stance regarding holding onto one’s wealth and increasing one’s preparations towards resilience.

Here’s the evidence:

  • Oil prices higher now than in 2009
  • Derivatives up more than $100 trillion since 2009
  • Government debts exploding
  • Weak GDP growth
  • Europe in trouble
  • Small investors leaving the market
  • China hitting a wall

One of the most important things we need to track is simply untrackable, and that is market perception. When faith in a faith-based money system vanishes, the game is pretty much over.

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Reviews

Clearly It’s Inflate or Die

January 5, 2012 at 4:30 am
silverax silverax

I disagree that the present situation is worse than 2008 since this time the policymakers know exactly what the alternative is to liquidity pumping (economic death) and how quickly it can appear (over a weekend). That is precisely why the “inflate or die” argument is even stronger now — the choice is stark and the bullshit of austerity or the “third way” gets peeled away pretty quickly by the urgency of the global debt situation. A Tea Party political movement would have been a good idea 20 years ago, today it is like using suntan lotion to avoid burns during a nuclear war. If a global economy run by central banks is normally a high wire act, then the current situation is a high wire act over the Grand Canyon with a blind clown in big clown shoes walking the wire while juggling 4 chain saws and carrying his son and grandpa on his back … who are taking turns tickling the clown’s nose with a peacock feather and jostling as they yell “ride ‘em cowboy!” in the clown’s ear. Any clown willing to undertake such a trick will neither have internal pretense about what needs to be done nor will he take heed of distractions. In other words, the chainsaws get dropped first but son and grandpa aren’t far behind if things get precarious enough.

2 years ago

24 Responses to Worse Than 2008Comment RSS Feed

  1. contango

    Don`t you think, that particularly for US-citizens “inflate or suffer a while” (die is a populistic exaggeration) is much better than several decades of “muddle through” (and not as comfortable as in Japan) with NO hope in sight, even after taxing away most people`s assets?
    What I miss in all those armageddon predictions (in case of the noninflate scenario) is the consideration of the human inventiveness and flexibility, particularly still with Americans (in contrast to us Europeans). Most people will be surprised how fast, maybe within 2-3 years, life will be quite tolerable again.
    But the biggest difference: Government would be much smaller, people would have actual hope and real prospects again.
    Sorry, but most governments, political and financials worlds of today need to be swept away, e.g. initiated by some bank failure, and be replaced by something more human. I`m sure somehing rather shattering is definetely in the offing, thank God.

    • @contango

      Yes of course for many people — those with a lot of gold especially but also poor people without young kids for example who have nothing to lose — it might be a preferable option to start over but I think we must realistically consider the average person and then also the persons who have the power to most influence socioeconomic policy. For these latter groups it is quite critical a consideration not to have too large a change and they will resist with vigor, the type of financial Armageddon associated with currency failure and banking collapse. Of course “die” refers to the currency/banking system and not the population but if we consider that most Americans really haven’t suffered a major hardship — not even their parents (grandparents might remember the Great Depression) — I would make a counterargument that Americans are in fact not psychologically or mentally prepared for an “intolerable” life of 2-3 years. In this sense, the “inflate” choice is merely a continuum along which the system has more or less happily floated for nearly a century with just the one really major interruption. Bottom line, to think that a majority of people will trade the known for the unknown is quite unrealistic. They would much rather “muddle through” for decades (though I highly doubt it would take that long, the U.S. is not Japan and is much more dynamic as you’ve correctly stated) then have a very painful 2-3 years now with the prospect, though not certainty, of returning to normal after that. It’s simply human nature.

  2. forwill

    I believe that when the masses hand over control of their currency to a central bank and thereby guarantee the accumulation of public debt, they are trading away one of the most important components of liberty. I like this Jefferson quote here…http://quotes.liberty-tree.ca/quote/thomas_jefferson_quote_0564
    The good old “slippery slope” or “moral hazard” ideas stated so eloquently “”A departure from principle in one instance
    becomes a precedent for [another ]…
    till the bulk of society is reduced to be mere automatons of misery…”".
    Credit expansion and contraction or booms and busts are a product of human nature and should be allowed to occur unfettered. It only took four generations for the “wonders of central banking” slippery slope to turn into a precipice. Unfortunately, it may take several generations of misery for the masses to realize once again that the size/power of a central government is inversely proportional to liberty.

    • @forwill

      I would beg to differ in some respects. We really don’t have empirical evidence what society or the economy would look like today if “credit expansion and contraction or booms and busts .. allowed to occur unfettered.” The world has never truly had a free market because it is human nature to attempt to control and obtain wealth and power beyond one’s survival needs. Individual liberty, in a larger sense, is also not a simple concept (consider things like racism, libel and copyright). So a market not under the government’s thumb is a market that is under the thumb of some non-government interest. That may not be fair — for example if you were a serf in feudal Europe or a slave on a Southern plantation.

      Jefferson had a very particular type of society in mind when he uttered those and other grand words about liberty — an agrarian, un-modern one in which the greatest cost — labor — was effectively free (slavery). Yes, the fact that he owned slaves makes his words quite ironic and his true meaning more complex than they might otherwise be at face value. It is not to say that the concepts of freedom and liberty are not noble — ideals that should be aspired to and in fact the key consideration in human interaction. But we must remember he was talking about equality among the “landed class” that feared being overlorded by a “banking class” as had already started to take place in old Europe. It certainly made sense for that time period but cannot really be used as a blueprint for today. One main reason is simply that little cooperation was required under the agrarian system (each farmer could be, and often was, self-sufficient). Can you imagine today a single engineer building an iPad, manufacture silicon chips or land on the moon?

      I’m sure you’ve also read about the robber barrons and business trusts of the late 1800′s during the golden age of the gold standard in the U.S. with no central banks. Nice free market that was! Look, I am not arguing against free markets or for central banks here, what I am pointing out is that the alternative is not an automatic “better”.

      Ultimately both government and the “free market” itself are merely tools for individuals to amass wealth and power and that is never going to change. I do think that elements of the gold standard — based on gold’s rarity, divisibility, familiarity, transportability, storability, immutability, etc. — can play a very important role (and has in fact has played an important role even in the present era of central banking) in any future successful monetary system but I don’t at all agree that the classical gold standard, or a classical Jeffersonian or Austrian school approach, where credit is a 1:1 prospect would ever work as the “best” solution. One problem is that the concept of wealth itself is ill-defined in most economic models including the classical gold standard (it is usually defined on a gross instead of net basis and completely ignores production value due in part to the anathema associated with the works of Karl Marx and other “communists” even though some of the principles they discussed are actually quite sound).

      Another problem is that even during the heyday of the late 1800′s there were in fact private banks making private loans with partial gold backing or by simply issuing their own unbacked bank notes so what you actually had was not a true gold standard but an official gold standard and an unofficial (black market) currency and credit system.

      Shifting gears a bit, I will also note that the British system worked for a while not because of the gold standard but despite it — keeping in mind that the British empire at the time controlled a large portion of the world’s resources through colonialism. And also keeping in mind that the banking empire by the Rothschilds — the origins of the modern banking system — was essentially built under the classical gold standard. They basically loaned out the gold deposited with them at interest and therefore didn’t merely act as a gold storage depository like other banks — and yes, doing so will create credit since the same gold is being “rehypothecated” potentially an infinite number of times. This by the way is the historical source for the unlimited rehypothecation that is still in place in the UK and Europe today and has recently been the subject of a lot of debate and angst. What the Rothschilds did well — unlike modern banks — is only lend to parties they were certain would repay (e.g, the obvious winning side in a war).

      So we do need to take historical realities into regard and as a result unfortunately there are no easy answers for the best currency or banking system, Moreover lack of empirical proof or any type of evidence at all means that every system is going to be an experiment. Ideally the “best” one would be the system that works with our own human nature (thus ruling out things like collectivism or an unregulated “free” market) and thereby provides the most appropriate rewards and penalties based on cultural ethical and moral standards. Again, gold should always be a primary consideration in any currency/financial system based on its inherent nature and utility but at the same time I personally don’t think that a dogmatic stance such as “there shall be no central banks or credit expansion” is a position that can be supported by common sense or historical precedent.

    • Giuseppe

      @silverax

      I think that you never spoke about your exact economic beliefs on MA and I started to fear that you were voluntarily avoiding any political topics. I did not know where to post a few questions I had about these matters until this article, so that I am now very happy to post them here.

      1. So, where do I begin? OK, first, what is the economic theory that best matches your current beliefs? I know your website is not about theories but about concrete investment ideas, so I suppose I should look somewhere else to find monetary stuff: can you suggest me where can I find articles that reflect your current ideas? I’m not sure I can seek on your past silverbug websites since you probably changed your monetary beliefs since 4 or 5 years ago, didn’t you? I noticed Zurbo in his website was in favor of abolishing the Federal Reserve and even linked this article on a website about conspiracies on the new world order: http://www.jesus-is-savior.com/Evils%20in%20Government/Federal%20Reserve%20Scam/abolish_the_federal_reserve.htm on the contrary MA now has got a link on a website which you refer to as “debunking the FED miths”.

      2. What is your opinion about MMT in particular if you have one? (5 big names of this economic school are coming to a summit in Italy on February that I’m going to join, so I was curious to know your opinion in particular, in the past I think that Zurbo was in favor of MMT as the second best alternative to gold standard and PM as money, when he wrote: “Lincoln had a different approach, the one this country was meant to follow according to the constitution. He issued greenbacks instead, debt and interest free, to pay the soldiers and buy the war supplies. … Granted, the greenback solution was still a type of inflation, but at least it put a end to the thievery of interest whereby international bankers made windfall profits without doing anything at all!”) http://www.silverinscripture.com/articles.php?id=43

      Ok, let’s end it here for now (I still have a few questions about your expectations on gold and silver prices in the futures and your perceived PM fundamentals, another topic you didn’t deal with on MA pages), since I already asked 2 huge questions.
      Actually I really am interested in some “goldbugs basics” because I would like to better understand the matter so that I can then summarize and explain it in the simplest possible terms in a new Italian website to “educate” my countrymen (in Italy we still do not have any goldbug or PM guru!).
      If anyone has got suggestions regarding where to find good stuff about PM fundamentals and monetary theories about gold, please tell them to me, thanks.

    • @Giuseppe

      Ciao Giuseppe!

      My own beliefs on money and economics have continued to evolve and I’m sure zurbo’s has as well. I used to believe some things 4-5 years ago that in retrospect were either naive or downright stupid. The reason we don’t spend much time talking about this stuff on MA is because no money is made from it and frankly a belief is worth exactly zero cents. That said, I will just hint that I used to be much more on the libertarian side of things but over time my research and historical examples have shown that some balance is warranted. In particular my research into the meaning of money has actually revealed some very important and ignored works surrounding economic theory including some stuff from religious sources and even some from anti-capitalists like Karl Marx. My feeling at this point is that nobody has really created the proper theory — neither Mises and the Austrian school nor the Keynesians or any of the derivations thereof. They each have actually contributed some important aspects but the problem is that in each case the theory eventually breaks down into dogma and belief instead of a strict adherence to science and principle. I’ll just give you one example and that has to do with competition. The thing is, market competitiveness is not a “free market” concept or a libertarian concept or a progressive concept, and sometimes it can even be more widespread in a system generally considered socialist compared to one that is capitalist. It simply gets used in the wrong CONTEXT by just about everybody. In fact, there are only two things that really matter when it comes to market competition: equal access and just rewards. Whatever system maximizes both those factors is the one that will have the best long-term result from a market competition standpoint. Such a system I assume would be a hybrid of various “pure” approaches and wouldn’t require appeals to dogma or ideology (as all current approaches now seem to require). Is this a topic we should address on Metal Augmentor? Maybe in the longer term but I don’t have the energy or desire to get into it constantly.

      As far as MMT (Modern Monetary Theory), gold standards and the such with direct impact on our investment field, it does make sense to address them and I wish that I had more time these days after all the other stuff we do at MA … but for now I don’t. To the extent I will spend some time on this area to put together educational material, it will be to go back to the very basics and build up a useful model that includes consideration for monetary gold and the asset value of PMs, mostly drawing on existing work such as Prof. Fekete, Mises and the various economic theories. I will of course keep looking into specific areas like the gold and silver markets such as the recent stuff on hypothecation, gold lease rates, and especially the gold basis and hopefully at some point we can build a similar approach to understanding the gold market itself as we plan for gold stocks. I’d also like to spend some more time here and there simply talking about why it makes sense for the average investor to have some gold and silver (most importantly gold and silver in their own secure possession). That is something bears repeating and frankly NOBODY does a good job of it out there (the guys who call for it go overboard and keep saying it is because gold will go to $10,000 but that is not the reason and the guys who try to be more balanced end up looking like shills or even gold bears like Kitco’s Jon Nadler).

    • @Giuseppe

      As a younger guy I am especially keen to echo Tom’s comment that “I used to believe some things 4-5 years ago that in retrospect were either naive or downright stupid.” I continue to host http://www.silverinscripture.com primarily only because it is able to bring some traffic through to Metal Augmentor. While I’m proud of some of the articles there (e.g. my studies of the silver market), there’s probably an equal amount that would make me gag if I were forced to read it again.

    • Giuseppe

      @silverax

      @Zurbo

      Thanks for your replies my friends.
      “Is this a topic we should address on Metal Augmentor?” Maybe other members could suggest their opinion. For me it is not necessary, nonetheless I would appreciate some basics and a few hints so that when my children or my wife were to ask me why should we own so much PM exposure, I could know what I should answer (and if I really will write a few commentaries in an Italian website I will know what I can write). At the time being my answer would probably be that I own many PM stocks primarily because I found a source that helps me to find value equities in this sector better than any other source in any other sector (of course as you already understood I mean Kaiser Bottomfish ;-) )

  3. Giuseppe

    silverax :@Giuseppe … As far as MMT (Modern Monetary Theory), gold standards and the such with direct impact on our investment field, it does make sense to address them and I wish that I had more time these days after all the other stuff we do at MA … but for now I don’t. To the extent I will spend some time on this area to put together educational material, it will be to go back to the very basics and build up a useful model that includes consideration for monetary gold and the asset value of PMs, mostly drawing on existing work such as Prof. Fekete, Mises and the various economic theories. I will of course keep looking into specific areas like the gold and silver markets such as the recent stuff on hypothecation, gold lease rates, and especially the gold basis and hopefully at some point we can build a similar approach to understanding the gold market itself as we plan for gold stocks. I’d also like to spend some more time here and there simply talking about why it makes sense for the average investor to have some gold and silver (most importantly gold and silver in their own secure possession). That is something bears repeating and frankly NOBODY does a good job of it out there (the guys who call for it go overboard and keep saying it is because gold will go to $10,000 but that is not the reason and the guys who try to be more balanced end up looking like shills or even gold bears like Kitco’s Jon Nadler).

    I will be very happy to hear some economic theories review from you, but maybe it is dangerous for you to write about things with not enough conspiracy smell for some MA subscribers… Maybe you could just spend 2 words about your opinion about the new fashion in economic theories: MMT. I’m very curious to hear William Black, Michael Hudson, Stephanie Kelton, Marshall Auerback and Alain Parguez at the 3 day long MMT Italian Summit in Rimini beginning this friday. It seem they will explain us how Greece is not being saved, and its populace could avoid the severe depression it will certainly face if it doesn’t default and exit the euro-zone, by following their economic rules. Is this an utopia? Is there really a conspiracy that doesn’t want states to have monetary sovereignty from banks? I’ll try to make an opinion on my own spending 3 days in this summit, but if you think MMT is a scammish utopia please give me an hint, because maybe I would be better to spend the weekend with my family…

    • @Giuseppe

      I think it is certainly worthwhile to hear about Modern Monetary Theory because there are clearly some aspects of it that explain economic relationships in a direct way that other theories approach in a roundabout manner (the ability of deficit spending, under the right circumstances, stimulating economic activity; government debt/deficit being ultimately the basis for quantitative monetary factors in a fiat system; ability to collect tax being central to confidence in fiat money; etc.). There are MMT concepts that other monetary theories should definitely incorporate because they are fundamental and logical truths about monetary systems … for accounting reasons if nothing else. Moreover, the reasons and conditions that I’ve discussed in the past as being critical to, for example a hyperinflationary scenario, appear quite similar to some of the stuff in MMT.

      But…MMT then goes too far in stating the ultimate importance of government deficits as an economic stabilizer and the necessity of deficits for growth and especially full employment. One major problem for example is the assumptions that governments will deficit spend “just enough” and in the correct ways (spending on infrastructure or to directly stimulate demand). Yet the evidence seems to be that a lot of government deficit spending — including wars and inept social welfare systems — ends up having knock-on effects such as taxpayers eventually revolting against unfair or ineffective spending (this would include the dreaded capital flight). Moreover, the accounting realities explained by MMT don’t have to be that particular way — for example commercial credit can be funded entirely by private means with the government only serving as a backstop (basically spreading risk between commercial sectors much in the same way that an insurance company would). Such a private system would work even under a (hybrid) gold standard that allowed, for example, future (monetary gold) income to be discounted and sold in the market. To the extent government is seen as a sole capable party in some circumstances MMT approaches a dogmatic impasse.

      Then there are situations like Japan, where a speculative land and asset bubble basically destroyed the financials ecgtor but the strong export and manufacturing base have allowed the country to internalize a deficit (for more than 30 years!) that would have otherwise long ago destroyed the Yen. MMT would say something like, the massive size of Japan’s deficit still allows the country to maintain a high standard of living for citizens without external funding. But in fact there is an external funding via the current account surplus — and it exists for purely structural (microeconomic) vs. (macro)economic reasons.

      Those structural reasons include the keiretsu system of intercompany relationships, homogenous business and consumer cultures, exploitation of a labor underclass, work ethics, etc. all of which make Japanese products highly competitive on the world markets. It isn’t about Japan keeping the Yen weak since they would need to build FX reserves anyway (sell Yen, buy FX) to support their export trade. It is purely a structural construct (an amalgamation of microeconomical factors) that macroeconomics — whether MMT or otherwise — cannot really adequately address.

      You’d think with today’s computers we’d have better models of microeconomic amalgamation (the simulation game genre like SimCity looked promising for economic applications but all we get are Monte Carlo simulation runs) instead of relying on all these faulty macro theories. If we actually looked at root cause instead of outcome then we’d have some science … but as it stands everybody is just groping different parts of an elephant in the dark…

    • Giuseppe

      @silverax

      OK, thanks very much.
      Just it is not clear to me if you think MMT could effectively work or not, or if you think it is not possible to know the outcome of this macro theory until you see it practiced.
      The big question in my mind is: would it be better for Greece to exit euro and follow MMT model or not? And would it be better for Italy, for Spain and for Portugal then?
      As an italian I hope Greece will exit the euro-zone, and possibly also try MMT, so that we can see if that could be more of an advantage or more of a disadvantage for them. Not that I would like to see Greeks used as guinea pigs (like in the movies Hostel and Hostel 2), but because I believe it couldn’t be much worse than it is going on now, with an alleged “rescue” from Europe that allows them to partially default and still have an unsustainable debt/GPD ratio left (supposed to be as high as 120% until 2020!).

    • Dave

      @Giuseppe

      Or Greece is just a political pawn being left on the edge of a precipice as a “stick” until euro-land accepts that political unity is a requisite part of euro-trade-land, I see no carrot though. ie not an economic thing at all, just political conspiracy theory and a nefarious dark-lord.

      On the other hand, those that like precedent should note that Greece has been a failed state for over a couple of millennia and made it a speciality subject 1826-1932, http://www.forbes.com/sites/investor/2011/09/28/debt-defaults-have-greek-history/, so why stop now, after all they are not top-spot in the league table it seems, might as well be good at something.

      So no I don’t have a clue, apologies for the interruption, I’m sure normal service will be restored.

    • joey

      @Dave

      enjoying a good laugh here, Dave.

      Don’t apologize. Abnormal service is just fine!

      Dumb, dumber, dumbest… If I ever get there, I will take consolation; as I will be the best at something.

    • forwill

      @Dave

      @joey

      Doesn’t being the “Cradle of Western Civilization” count for anything anymore?

    • Tweetie

      @forwill

      Of course. It makes Greece a great tourist destination. They could entertain German tourists instead of asking for handouts.

      Just return the country to the Drachma, so it is once again competitive with Turkey.

    • Dave

      @Tweetie

      Turkey not so cheap as it used to be, but certainly better value than Greece. But would like to go back to some Greek islands.
      More ancient ruins in Turkey than Greece, amazing aqueduct stuff.

      @forwill

      Got to ask where they got the ideas from. Egypt perhaps.

  4. BombVark

    If I may, time better spent studying the Austrians. Here is a brief article on MMT/Chartalism. http://mises.org/daily/5260

    • @BombVark

      Yes probably but the Austrians aren’t going to be able to do that much for a country like Greece. Maybe clean up some of the government inefficiency but a country like that (or any of the other basket cases, which is actually almost every country in the world) couldn’t really do anything with the gold standard if the tough structural and sociopolitical adjustments are not made. And frankly, Murphy doesn’t do Mises any favors by dwelling on #2 (see my response to Giuseppe) given how he equates taxes to having a gun stuck in your belly. Maybe if we are talking about the sheriff of Nottingham but in the U.S. there is at least a slight opportunity for representation (and no, the tea party does not represent America, just a segment of it). Also his focus on the tautology angle of MMT misses a big point of the theory which is that it doesn’t actually deal with the long-term at all (for example ignoring the grinding inflationary effect of perpetual deficits) but rather deals with the monetary formula as a dynamic (which must balance in the SHORT TERM). This is exactly what we should expect given that Austrian economics is by its very construct concerned only with the long term — the whole theory after all is that the short term doesn’t matter since business cycles are natural and booms will follow busts if the free market is allowed to do its thing. Given these differences, the two theories aren’t even alternatives … they operate in different universes although the possibility of some hybrid Frankenstein theory that can address both short and long term does intrigue me.

  5. Giuseppe :

    @silverax

    OK, thanks very much.
    Just it is not clear to me if you think MMT could effectively work or not, or if you think it is not possible to know the outcome of this macro theory until you see it practiced.
    The big question in my mind is: would it be better for Greece to exit euro and follow MMT model or not? And would it be better for Italy, for Spain and for Portugal then?
    As an italian I hope Greece will exit the euro-zone, and possibly also try MMT, so that we can see if that could be more of an advantage or more of a disadvantage for them. Not that I would like to see Greeks used as guinea pigs (like in the movies Hostel and Hostel 2), but because I believe it couldn’t be much worse than it is going on now, with an alleged “rescue” from Europe that allows them to partially default and still have an unsustainable debt/GPD ratio left (supposed to be as high as 120% until 2020!).

    MMT is more a definition of macroeconomic relationships than a policy, although you can obtain policies from it (such as that governments should deficit spend their way out of economic contraction). So when you ask if Greece should follow MMT that is not really a valid question. The real question is, should Greece exit the Euro since it has no other choice under it but austerity, and instead go back to the drachma and then deficit spend until the economy has recovered?

    The answer is that it really doesn’t matter what economic policy Greece (or any other country in that kind of trouble) chooses — what matters are the structural and other factors that drive economic activity.

    In the case of Greece economic contraction is not the only problem — there are real structural issues: demographics, tax avoidance, inefficient government run institutions, unfunded pension schemes the working population cannot support, lack of innovation, weak financial markets, Some of these things can be fixed but others cannot…ultimately though somebody is going to have to sacrifice. Thus in the end we can really boil down these economic “theories” to who should be sacrificed in accordance with #1 efficiency principles (there is no point of making a sacrifice if it won’t lead to higher production or a better economic outcome) and #2 the politics of fairness (WHO deserves or doesn’t deserve to be sacrificed). I think it is important for outside observers to a scenario to concern themselves only with #1 and not #2 and yet many times people without a direct stake in the outcome get bogged down in #2. They also really get bogged down in #2 here in the U.S. because of the vast array of ideology our long-lived constitutional form of government has cultivated.

    So getting back to Greece, no, the austerity stuff isn’t going to fix anything but the country can make the tough choices (sacrifices) on its own and transition to a pro-growth government that encourages business and innovation. Sell off government owned enterprises. Maybe sell an island or two to the oil sheiks. Set up some tax or duty free enterprise zones. Do some strategic deals to bring business to the country. Exploit the excellent tourism opportunities. Completely restructure government. On the opposite extreme of the ideological curve, I’d even say put the youth to work in large scale public works projects. But MMT? Or Austrian school? Theories can’t help Greece, or Italy, or the U.S. — only sacrifices followed by structural changes that encourage production and output.

  6. BombVark

    @silverax

    Have to disagree with your contention that Austrians are concerned with the long term only. I may misunderstand you but certainly Austrian don’t argue that booms and busts are inevitable under a free market. It is because central banks intervene and push interest rates ,lower than the “natural” rate is what causes booms and busts. Markets can be distorted in the short term but economic laws always prevail in the long term. Austrians have discussed both the long term and short term effects of government intervention. Mises’ “Interventionism” is his best work on that subject.

    I picked Murphy’s article because he points out MMT is not a new theory but a rehashed theory which has been discussed and discredited. There are plenty of other articles at mises.org which discuss MMT. On the Greek situation, Philip Bagus discusses it here: http://mises.org/daily/4091
    Bagus also co-wrote an excellent book on the Iceland crisis of a few years back, “Deep Freeze”, it is available for download for interested parties.

    • joey

      @BombVark

      re: “…an excellent book on the Iceland crisis…”

      Synchronicity! This morning, I got into reading Michael Lewis’ new book ‘Boomerang’; and the first chapter, titled ‘Wall Street on the Tundra’ is about the Iceland crisis. I would never reco this as an authoritative and scholarly version; but I was literally shaking my head with incredulity and laughing out loud. Reco’d as an easy and very interesting read for some interlude at one of those comfortable bookstores with cafes for the malingerers.

    • @BombVark

      Austrians not concerned “only” with long term, but the free market economic policy is definitely a long-term oriented approach relative to gov’t or CB market intervention that is obviously short-term. That is the sense in which I referred to “term”. As for booms and busts, I guess we are definitely going to have to disagree there. Booms/busts will occur under every type of economic system, even the classical gold standard. An old Russian guy even wrote about these “cycles” … during the period of the classical gold standard. Meantime, the U.S. had no central bank in the late 1800s and yet that period was as boom-y and bust-y as ever, with a dozen “panics” and “crises” and what-have-you’s. The booms and busts are natural and definitely not the fault of CBs, what the CB’s do though is trying to shorten them or lessen their impact but instead create misallocations of capital and financial imbalances that grow over time until a garden-variety crisis turns into a Great Depression or what we saw in 2008.

      MMT being an old repackaged theory is a good thing to point out but I would say that the whole of it has not been discredited (some parts can’t be discredited because they are tautologies or simply accounting definitions). Clearly the parts about savings not being possible (in the long term) without government deficit spending is silly. But the part about government adjusting its spending level when private enterprise is retrenching? I don’t see anybody, not even Mises, discrediting that.

  7. Giuseppe

    silverax :Clearly the parts about savings not being possible (in the long term) without government deficit spending is silly.

    Can you elaborate please?
    I know all economic models are supposed to have “trade-off” and not just advantagies like the 5 economists in Rimini tried to convince me, so I still am trying to better understand MMT with the help of its detractors. I already have found a critical point in that it is dangerous when you say to the government that it can spend in deficit as much as it wants, because it will probably go too far until money gets iper-inflated, so I believe MMT should rule clear limits to debt/money creation.
    On the contrary I still have to understand what is wrond in their assumption that savings are not possible (in the long term) without government deficit spending (actually they say that could be possible but only with a strong foreign trade balance surplus, like shown here)

    http://4.bp.blogspot.com/-Jtgr1B-3AYM/TfEeI9ZGPPI/AAAAAAAAAaQ/enAYegfn7MQ/s1600/Untitled-1.png

    Actually if you look at this chart

    http://1.bp.blogspot.com/-1a0JLvj-BOw/TZh9prS8StI/AAAAAAAAAYU/wyr_DMPnmWo/s1600/balances.png

    that Stephanie Kelton showed us during the summit it is quite clear that government balance and domestic private sector balance in US have always been symmetrically contrary. So it doesn’t seem so much silly to me their assumption (maybe it still is wrong, ok). When the money that exists isn’t gold, but it is someone else’s debt, if the government debt went to zero, then there would be very little money left maybe?

    • @Giuseppe

      The problem is with their definition of savings…that part was stated quite well by the Murphy guy from the Mises institute. By the MMT proponents’ definition, the savings must be in fiat currency and it must be net of investment. “Investment” is also known as capital in the private market. Thus with this definition savings = “capital in the government sector”. So yes, the MMT definition of “savings” ends up being equal to the amount of deficit financed by government debt (after all, somebody has to buy that debt and hold it!!!) It is not a solution by itself unless you think simply inflating the money supply can make problems disappear without actually having private sector growth. It can perhaps presumptively work in conjunction with economic growth and moderate inflation … as it did in fact after WWII and to a (much) lesser extent in the early 1980s.

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